'Stick Together Like Glue'
By Peggy Anne Salz, Thu Oct 30 07:45:00 GMT 2003

Business models have a habit of making a comeback - even if they weren't so hot the first time around. The loyalty schemes operators are hatching to boost wireless use could go boom -- or bust.

When I was freelancing for TIME magazine I had a strange and short-lived beat: report on the wacky gimmicks providers were hatching to get people to use the Internet more. Many them were one-hit wonders (and so were the providers), but the idea of paying people to surf caught on. In fact, in the UK, users started to see this as a way to earn some extra cash. Passing interest turned to user frenzy. And in the end the idea went the way of most in the dot.com world. It crashed and burned.

Now, loyalty schemes are making a comeback in the mobile space. Desperate to stop churn and raise ARPU, some operators want to give the user something back. But many more are simply targeting big spenders. In the process they are rushing to withdraw their voucher programs -- and generally thinking up ways to discourage pre-paid customers. Wrong move - in fact this is set to backfire.

Without pointing fingers, most operators have been guilty of selling their services as if we should be glad for the privilege to access them. Operators need to understand that, like supermarkets, they too have to compete with special offers - and cater to a crowd that likes to shop around. Mobile voice is a commodity - and mobile data isn't worth its price tag until the services are sexy and the networks interconnect (and not at rip-off roaming prices, either).

Virgin Mobile in the UK got the message. It has just launched the biggest customer reward scheme in the mobile industry - ever. Aptly called "Glue," Virgin's connect-a-friend scheme gives Virgin Mobile's customers 10 free airtime for every friend they introduce to the network. Users can sign up eight buddies per year - and earn a max of 80 free airtime. Unlike similar schemes from Vodafone and Orange, Glue doesn't require the recruits to spend over 99.99 on a handset.

Richard Branson says he's "rewritten the rule book of what people should expect from their mobile and loyalty schemes" - and he's not just bragging. Virgin has effectively set a precedent that other operators will follow - if they're smart.

A few months ago I interviewed a senior exec at a major European operator who thought that providing users a robust GPRS network was enough of a treat to keep any customer loyal. Perhaps not. The arrival of a scheme like Glue is a signal to the mobile industry that competition for users is about to reach a new level - and services aren't the silver bullet differentiator we thought they were. Users will demand something in return - and cash-strapped operators will have to deliver.